GST On Under-Construction Property: Here’s All You Need To Know

GST or Goods and Services Tax is a landmark reform that came into effect from July 1, 2017. This reform aims to eliminate multiple taxes at multiple points of transactions. Hence, you only need to pay one tax and that too at just one point in the entire transaction. Various goods and services come under the purview of GST in one of the four tax slabs – 5, 12, 18 and 28 per cent. A good question surrounds the GST rates on under-construction property. Why? Simply because there is a chance that one tax rate, the prices of such properties can come down. In essence, buying a new home is likely to become more affordable. So, let’s discuss the effect of GST on under-construction property.

GST On Under-Construction Property – A Lowdown

#1: Tax Rate

Under GST, an under-construction property now attracts 12 per cent tax. Before you think how it affects the value of an under-construction property, consider this. Earlier, you had to pay service tax and VAT. These taxes had a cascading effect, making the property cost go up. However, with just one time tax of 12 per cent, the chances of your under-construction property costing less are high. Also, developers will get input tax credit for taxes paid on cement and other construction materials, negating the rise in costs.

#2: Effect of Input Tax Credit

In case you are wondering about the benefit of input tax credit benefit to developers benefitting you, allow us to explain. Most of the construction materials, from cement to steel bars, fall under 18 and 28 per cent GST slabs. Housing.com explains this with a simple example. stating that earlier, due to multiple taxes, the tax paid was close to 30 cent on cement. However, with it falling under 28 per cent slab, the tax incidence is lower. Also, the benefit of input tax credit will neutralise this cost to the builder, who can then pass on the benefit to the buyer.

#3: Property Type

An important aspect to consider here is the property type. An under-construction property, which will sold to an individual wholly or partly, will benefit here. There is no such benefit on ready-to-move-in properties. The only hiccup in all this is, experts believe, that stamp duty and property tax may still be levied on such properties.

#4: Property Rates

Another big grey area in this conversation is the taxes levied by the states. Since every state levies different taxes on under-construction properties, you may or may not end up saving any money on such a transaction. The number of new project launches have come down in the past few years, owing to falling demand. The trend is not expected to be on an upswing anytime soon.

GST On Under-Construction Property – Conclusion

The benefits of GST are quite big. Providing input tax credit will definitely bring the developers’ cost down, which is a positive outcome of GST on under-construction property. Also, the reduction in number of taxes will benefit the buyers. However, for this to happen, developers will have to streamline their processes to benefit from input tax credits. Only then will they be able to pass on the benefit of GST on under-construction property to buyers. Otherwise, despite anti-profiteering clauses in GST, buyers may still have to shell out a pretty penny for their own houses. Let’s wait and watch how this story develops.